470 Collins Street is one of the first buildings in Melbourne's CBD to be retrofitted using an Environmental Upgrade Agreement.

The introduction of environmental upgrade agreements (EUAs) by a number of Australian councils  is expected to unlock billions of investment dollars into commercial building retrofit projects.

In 2010, EUAs were developed under the City of Melbourne’s 1200 Buildings program to address two key barriers to the retrofitting of the city’s existing commercial building stock: access to capital for environmental upgrades and what is commonly referred to as the split incentive.

This latter term refers to the inequitable accruing of savings between the stakeholders of a building as a result of environmental upgrades, where often the building owner pays for energy efficiency upgrades only for the tenant to benefit by way of reduced electricity bills.

To overcome these barriers, the City of Melbourne worked with the Victorian state government to amend the City of Melbourne Act 2001, enabling the council to levy a new form of statutory charge, called the environmental upgrade charge.

In an Australian first, this amendment allows the council to become involved in the funding mechanism by facilitating collection of repayments via the environmental upgrade charge and ranking it a priority ahead of other debts and charges in the event of default.

When you compare financing a retrofit via debt, equity or EUA, there are clear financial benefits using an EUA

Scott Bocskay, CEO for the Sustainable Melbourne Fund

By providing this level of security, finance providers have viewed such loans as lower risk, and therefore have been prepared to offer environmental upgrade finance to customers at lower interest rates and for longer terms.

For small to medium property owners especially, it means finance for building retrofits that lead to environmental performance improvements is substantially easier to access.

“This overcomes the main barrier to financiers funding efficiency projects, which is the issue of obtaining security as collateral for funds advanced,” explains Scott Bocskay, CEO for the Sustainable Melbourne Fund – the administrator of EUAs within the City of Melbourne’s 1200 Buildings program.

“The availability of environmental upgrade finance presents the commercial building sector with an unprecedented opportunity to become more energy and water efficient.”

For more information on the 1200 Buildings program and environmental upgrades go to http://www.melbourne.vic.gov.au/1200buildings/Pages/Home.aspx